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00:04 Good afternoon, and welcome to the Edison International First Quarter 2022 Financial Teleconference. My name is Dextor, and I will be your operator today. [Operator Instructions] Today's call is being recorded. 00:19 I will like to now turn the call over to Mr. Sam Ramraj, Vice President of Investor Relations. Mr.

Ramraj, you may begin your conference..

00:29 Thank you, Dextor, and welcome everyone. Our speakers today are President and Chief Executive Officer, Pedro Pizarro; and Executive Vice President and Chief Financial Officer, Maria Rigatti. Also on the call are other members of the management team. 00:43 Materials supporting today's call are available at www.edisoninvestor.com.

These include our Form 10-Q, prepared remarks from Pedro and Maria, and the teleconference presentation. Tomorrow, we will distribute our regular business update presentation. 01:01 During this call, we'll make forward-looking statements about the outlook for Edison International and its subsidiaries.

Actual results could differ materially from current expectations. Important factors that could cause different results are set forth in our SEC filings. Please read these carefully. The presentation includes certain outlook assumptions, as well as reconciliation of non-GAAP measures to the nearest GAAP measure.

01:28 During the question-and-answer session, please limit yourself to one question and one follow-up. I will now turn the call over to Pedro..

01:37 Thank you, Sam. Edison International reported core earnings per share of $1.07, compared to $0.79 a year ago. We are reiterating our 2022 core EPS guidance range of $4.40 to $4.70 and our longer-term EPS growth target of 5% to 7% through 2025, resulting in core EPS of $5.50 to $5.90. Maria will discuss our financial performance in her remarks.

02:08 Over the last year, I’ve been updating you on SCE’s substantial reduction of wildfire risk. Relative to pre-2018 levels, SCE estimates it has reduced the probability of losses from catastrophic wildfire by 65% to 70%, and continued investments will further reduce this risk.

02:26 When we look across all 17,000 circuit miles of distribution lines in SCE’s high fire risk area, the utility’s grid hardening measures are focused on the roughly 10,000 miles that are above ground, with the other 7,000 already being underground. The cornerstone of SCE’s grid hardening measures is the wildfire covered conductor program.

A key benefit is how quickly it reduces wildfire risk. 02:52 Through the end of the first quarter, SCE has over 3,200 miles of covered conductor. This is nearly double what was covered at the same time last year.

SCE continues to drive this program forward and expects to have covered 40% of its overhead distribution lines, or 4,000 of its 10,000 miles in its high fire risk areas, by year-end. 03:15 The utility continues to adapt and update its Wildfire Mitigation Plan to build on successes and learnings from the field.

Most importantly, SCE’s WMP is immediately actionable, and the execution results in real risk reduction today and each day that SCE hardens its grid. In addition, SCE is preparing for this wildfire season by prioritizing its inspections and vegetation management programs.

03:40 SCE focuses its annual inspections on equipment that makes up 97% of total wildfire risk in 2022 and plans to accelerate completion of the vast majority of these inspections before September 1.

03:54 Today, 166 cameras provide visibility to about 90% of high fire risk areas, and planned installations in 2022 and beyond will increase coverage to nearly all of the utility’s HFRA to enhance early fire detection.

SCE is increasing installed weather stations by over 10% and using machine learning to further advance forecasting and target PSPS events more precisely. Taken together, all of these efforts give SCE confidence in its ability to mitigate wildfires associated with its equipment.

04:29 Turning to wildfire-related settlements, SCE made substantial progress resolving 2017 and 2018 Wildfire and Mudslide Events claims. In the first quarter, SCE resolved over $700 million of claims.

Driven by this progress and given SCE’s current assessment of claims, the utility revised the best estimate of total losses higher by $416 million to a total of $7.9 billion. 05:01 I would like to share the two factors that contributed to this revision.

First, during the quarter there were a handful of exceptionally large claims that were settled based on new information that became available during settlement negotiations. Second, as the statute of limitations for the Woolsey fire approaches, SCE saw a higher-than-expected increase in the number of plaintiffs making claims.

05:26 SCE reviewed its estimate and determined it was appropriate to revise the best estimate, which includes new provisions for future potential exceptionally large claims. In total, the utility has resolved over 80% of its best estimate of expected losses and continues to make steady progress in resolving claims.

05:47 I would like to be clear that SCE currently expects to seek full CPUC cost recovery of claims payments, excluding amounts recoverable from insurance or FERC, or foregone under the agreement with the Safety Enforcement Division.

A related question we’ve heard from the investment community is, “when does SCE expect to make that filing?” 06:09 Well, based on the current pace of settlements, SCE anticipates filing its first application for cost recovery by late 2023. I strongly believe that SCE operated its system prudently and will make a solid case in its filing.

The considerations SCE will take into account in deciding the timing of its filings are described on Page 4. 06:31 Another action I want to highlight is SCE’s recent legal challenge to inverse condemnation in the Thomas and Koenigstein fire litigation.

We have mentioned in past discussions that SCE will always seek opportunities to challenge the doctrine of inverse condemnation. 06:48 To that end, in April, the utility filed a notice of appeal with the California Court of Appeals challenging inverse condemnation.

Cases like this generally take one to two years to reach a conclusion, and we will keep you apprised of any meaningful developments. 07:03 On the regulatory front, SCE recently filed its application for the 2023 CPUC cost of capital, requesting a return on equity of 10.53%, while maintaining its authorized equity layer at 52%.

As we have outlined since publishing the Pathway 2045 vision, economywide electrification is necessary to meet California’s policy goals. 07:27 SCE will be a key enabler of the clean energy transition and will invest significant amounts of capital in its infrastructure.

We believe that SCE’s requested ROE will support attracting this capital necessary to meet its obligations to provide safe, reliable, and resilient service and enable the state’s climate change adaptation and decarbonization goals. Separately, SCE is awaiting resolution of whether the cost of capital mechanism will operate for 2022.

We have summarized SCE’s outstanding cost of capital applications on Page 5. 08:01 Let me conclude by saying that we strongly believe Edison International is the best investment vehicle to participate in California’s clean energy transition.

SCE’s approach to wildfire mitigation has shown positive results over the last three wildfire seasons and the utility is expeditiously hardening the grid every day, to the benefit of both our customers and our investors.

08:25 As an electric-only, wires-focused utility, SCE’s ongoing investment in the grid will enable an electric-led future by integrating clean resources, while enhancing resilience and broader climate adaptation. Economywide electrification is the most affordable path to achieving California’s climate goals.

08:45 With that, Maria will provide her financial report..

08:49 Thank you, Pedro and good afternoon. My comments today will cover first quarter 2022 results, our capital expenditure and rate base forecasts, SCE’s cost of capital applications, and 2022 EPS guidance.

09:03 Edison International reported core earnings of $1.07 per share for the first quarter, an increase of $0.28 per share from the same period last year. Core EPS increased year-over-year, primarily due the adoption of the 2021 GRC final decision in the third quarter of 2021, partially offset by interest expense from increased borrowings.

09:26 On Page 6, you can see SCE’s key first quarter EPS drivers on the right-hand side. I’ll highlight a few. Authorized revenue from the 2021 GRC was higher by $0.35 for two reasons. First, the escalation mechanism for 2022 contributed $0.18 to the variance.

Second, because SCE did not have a GRC final decision in the first quarter of last year, it was recording revenue at 2020 levels. This timing difference contributed $0.17 to year-over-year Q1 revenue growth. 10:00 Other CPUC revenue was $0.51 higher, primarily related to the approval of GRC track 2.

With this approval, SCE recognized revenue for costs previously deferred to memo accounts. Note that this revenue increase was fully offset, primarily by the recognition of $0.46 of O&M resulting from the track 2 decision. At EIX Parent and Other, the core loss was $0.06 higher in the first quarter.

This was primarily due to dividends on the preferred equity issued last year. 10:33 Now let’s move to SCE’s capital expenditure and rate base forecasts. Page 7 shows SCE’s updated capital forecast to reflect its upcoming GRC track 4 application, which will be filed on May 13.

Track 4 covers funding for 2024, which is the third attrition year of SCE’s 2021 GRC. 10:54 In addition to requesting a revenue increase driven by the GRC attrition mechanism and inflation, SCE will propose continued deployment of covered conductor beyond the over 5,000 miles expected to be installed by the end of 2023.

11:10 I would like to reiterate Pedro’s earlier comment on SCE’s wildfire mitigation plan. It is immediately actionable and the execution of the work results in real risk reduction today and each day that SCE hardens its grid. As shown on Page 8, our capital forecast continues to result in projected rate base growth of 7% to 9% from 2021 to 2025.

11:34 The forecast reflects SCE’s current view of the requests to be made in GRC track 4, the 2025 GRC, and other applications. We continue to see strong potential for SCE to continue deploying capital and achieving 7% to 9% rate base growth through 2025.

11:53 Turning to guidance, Pages 9 and 10 show our 2022 guidance and the key assumptions for modeling purposes. We are affirming our 2022 core EPS guidance range of $4.40 to $4.70.

SCE is recording revenue based on its currently authorized cost of capital and will reflect the final decision in the 2022 cost of capital proceeding in the quarter in which it is received. 12:19 As Pedro mentioned, we are awaiting resolution of whether the cost of capital mechanism will operate for 2022.

After receiving a final decision from the CPUC, we will provide an update on guidance to incorporate any changes in the ROE and our outlook for the rest of the year. 12:36 Also embedded in our guidance is EIX’s 2022 financing plan, which we disclosed last quarter and remains unchanged.

The revision to the best estimate of total expected losses does not change our plan. Also, I’ll remind you that the claims payments themselves are funded with debt issued by SCE. 12:55 I’d like to provide some additional insight into two of SCE’s recent applications to the CPUC.

First, SCE filed a request to extend its CPUC capital structure waiver with respect to the 2017 and 2018 Wildfire and Mudslide Events. You may recall that the CPUC previously approved a waiver through the earlier of May 2022 or resolution of the 2017 and 2018 events.

13:20 The waiver allows SCE to exclude certain charges and debt when calculating compliance with its 52% authorized CPUC equity ratio. SCE has requested an extension of the waiver period until the CPUC resolves the last of SCE’s cost recovery applications for the 2017 and 2018 events.

13:41 The current waiver remains in place until the CPUC rules on the recently filed application. This provides SCE with the flexibility to finance itself in a way that is efficient for customers and shareholders. Second, in SCE’s 2023 cost of capital application, it requested an ROE of 10.53%, consistent with its recently filed off-cycle application.

This ROE is at the upper end of the reasonable range estimated by SCE’s expert witness. 14:12 We believe SCE made strong arguments justifying its request and remind you that in SCE’s last cost of capital decision the CPUC concluded SCE’s ROE should be at the upper end of the range.

Under SCE’s proposed schedule, the proceeding would conclude with a final decision by the end of the year. 14:32 Turning to Page 11, I want to reiterate our growth opportunities that drive strong core earnings growth from 2021 through 2025, and highlight EIX’s potential to achieve double-digit total shareholder return during that period.

A key component of our total return proposition is our common dividend, which currently yields approximately 4%. 14:54 I’m proud of our track record of 18 consecutive years of dividend growth and look forward to building on that history.

Our EPS growth of 5% to 7% is driven by SCE’s significant capital expenditure opportunities, including investments in the safety and reliability of the grid. Sustainable rate base growth results from the investments necessary to reduce wildfire risk and investments to support infrastructure replacement and load growth.

15:20 Affordability is also a key consideration, and I would like to emphasize that SCE has the lowest system average rate among California’s large IOUs. This is in large part driven by our strong culture of excellent cost management that has been a cornerstone of the utility for more than a decade. 15:38 That concludes my remarks. Thank you..

15:40 Dextor, please open the call for questions. As a reminder, we request you to limit yourself to one question and one follow-up, so everyone in line has the opportunity to ask questions..

15:52 [Operator Instructions] Our first question comes from Shar Pourreza of Guggenheim Partners. Shar, your line is open..

16:08 Hey guys..

16:09 Hi Shar..

16:10 Hi Shar..

16:12 Pedro, first sort of in terms of the initial filings coming in 2023, it’s obviously it is a great start to a resolution and it obviously implies that you would be filing multiple times for recovery, how do we plan to separate the tranches? Is it kind of based on the percentage of value settled? Just want to get some clarity on the process from your standpoint.

How long the recovery, regulatory recovery could take and if you don’t have 90% of the claims settled, are you still going to file in late 2023? And even why not file even sooner in 2022, if these are going to be in step functions?.

16:49 Shar all good part to the question. We shared before that we expected the CPUC and [churn] [ph] expects to have this piece substantially complete our any given case before we go for cost recovery.

So, we’ve also said in the past that we see the 2017 Thomas and Koenigstein mudslide cases as one bundle and the Woolsey case from 2018 as a separate bundle.

17:15 So, I think it would be natural to expect this – to see those as individual cost recovery packages and so we talked about being, what we think will need to be at least 90% complete it’s for any one of those packages before we then go file the application.

Just to make sure, our [indiscernible] came across clearly based on the current track and pace with the litigation and settlements, we would expect that earliest bundle to be at that 90% plus level by the end of 2023 so that ends our expectation we will be making a filing in late 2023, but again that is premised on continuing on the track that we’ve been and if we don’t expect this to be the case, we currently expect to be there by late 2020, but if something happened, you know that significantly delayed us from being off of that track.

18:16 I don’t know what that would be. I know the round of COVID that really led to shut down, so something like that or might recall the early period of COVID really put a halt on the piece of discussions.

Don’t expect it to happen, but it is that kind of thing that could then throw the timing of the [unlike] [ph] 2023, don’t currently expect that to be the case..

18:36 Got it. And then just, I guess the [impetus] [ph] was we’re getting questions on – because you have 80% already almost resolved, it seems like it is “substantial” so why not file sooner, but it makes sense, it makes sense Pedro.

And then, just may be a question for Maria, as I was sort of thinking about potentially more cost increases as sort of the incremental 20% gets resolved, what's the trigger for more equity back and as we think about the balance sheet capacity, sort of other rating agencies comfortable with the current metrics and the approach you guys are taking, how is the dialogue going? I guess, what's their sense of patients in anticipation of multiple filings for recovery? Thanks..

19:17 Sure. Thanks, Shar. And I think generally, our financing framework is 15% to 17%, FFO is debt. I think we’re approximately at those levels right now. I think as we go into next year, I would say, we’re generally going to be sort of around the middle of that range.

I think the rating agencies first and foremost are interested in our risk reduction and that's the first order of any conversation we have with them.

19:40 And so, we've been able to emphasize with the rating agencies that 65% to 70% risk reduction because of the hardening of the grid, we continue to talk to them about the strong support we get from AB 1054 and so those are all the things that really are part and parcel of our rating agency discussions.

19:57 You know from the comments we've already made today that the change in the best estimate currently is not [indiscernible] us to change our financing plan, we're still on track with advancing plan we announced in Q4 for 2022.

And if we move forward, subject to any changes – further changes in the estimate, really it's going to depend on, sort of the timing where we are, etcetera, but since we are in a good spot in our metrics, I think that we'll continue to have constructive conversations with the rating agencies..

20:27 Got it. That's what I wanted to sort of get [indiscernible] if there's incremental cost increases you think you have enough cushion in your balance or thresholds not have to hit the equity markets. That's the impetus..

20:40 Yes. So, we played out our longer-term equity plan as well that follows our growth in the company. And as we move through and into that 15% to 17% range, that will just give us some more support in the balance sheet..

20:53 Okay, terrific. Thank you guys so much..

20:56 Thank you, Shar..

20:57 Our next question comes from Steve Fleishman, Wolfe Research. Steve, your line is open..

21:06 Yeah, hi. Good afternoon. Thank you.

So, just on the prudency cases, any sense Pedro, Maria, how long those cases might take to adjudicate?.

21:22 Hard to predict in advance. I would say, first of all, it starts with having a strong showing. So, we expect that our team will have a very strong showing put together when we file. And as you can imagine, the team has been working on that all along.

21:37 Once you go into a CPUC proceeding, it’s hard to estimate, what that would be, I'd say, typical time frames for CPUC proceedings can be and the short-end something very fast maybe the 12 months, 15 months, sometimes it can take a little a little longer, so we'll just have to see, and I have a better gauge for how long it might take once we file and once we see what kind of initial set of intermediary actions are filed..

22:06 Okay. That's helpful.

And then just related, the estimate change this quarter, you mentioned the exceptionally large claims and also the statute limitations hitting for Woolsey like, any reason - why can't those things happen again, I guess? Is there another statute of limitations on any of the fires still to come?.

22:36 So, for the 2017 and 2018 cases, the remaining statute of [limitations stayed] is just we'll see that I thought it to. To your broader question, as we go along, that uncertain count continues to narrow right because we have more settlements under our belt and you heard 80% number.

As you'll see in other disclosures, we acknowledge it is possible we may see further changes because the reality is, every individual case is different. And frankly there can be new insights and new kinds of cases, etcetera that show up.

23:19 In this particular quarter, as we mentioned, we made great progress Steve, but frankly, there was a small number of outlier cases where the ultimate claims were significantly larger than what we had expected based on the neighborhood these were in, what you would expect for an average case in those and sale, one thing that you are going to be saying is that we have now made provisions not only increasing the reserve for what we have seen, but we also added a provision in the reserve now, now expecting some of that previously unexpected, right? Based on the experience we had, we've added provision or potential other exceedingly large individual claims exceeding what we had initially thought might be an average claim size.

So, we try to learn from the continuous information we've gotten, make the provision for that, but at the end of the day under GAAP we would provide [indiscernible] what we believe is our best estimate at this point in time..

24:26 Maybe I’d just add one other thing Steve, because I think as we go through our best estimate exercise, it is important we are looking at it every quarter and we'll continue – it’s going to continue to be one of the big areas of management judgment, but as I think about it, I also think about all the things you've accomplished that have brought us to this point.

We started with the public entity settlements. We went to the TKM subrogation settlements. 24:46 We went then to the [indiscernible] subrogation claim settlement. Over the course of that time, the attorney general has closed both of the increase into both Woolsey and the TKM. In just the last quarter, Q1 2022 we did $700 million in settlements.

So that's what brought us to this point where we made the revision, but it's also what brought us to this point in terms of being able to highlight by late 2023 going in for a prudency review and filing an application.

25:13 So, I think all of that also factors into, sort of how we thought about the quarter and how we're thinking about the go-forward?.

25:21 I think, also Maria, and basically, we keep taking uncertainty off the table..

25:28 Thank you for all that added color. Thank you..

25:31 Yes. Thanks, Steve..

25:33 Our next question comes from Ryan Levine, Citi. Ryan, your line is open..

25:39 Hi, good afternoon. Hi, everybody.

Two questions, what's the status of the battery supply chain and execution? And do you still see the August first date as realistic? And I guess more broadly, how do you viewing resource adequacy going into the remaining portion of the year?.

25:56 Yeah. I'll kick off on that and actually, I can also turn it over to Steve Powell in a minute here. So, CEO of the Utility. I think the headline on this is that, as you know, [indiscernible] contractor for the SCE 535 megawatt utility on-storage project. We are working with them under the contract.

There have been constraints in terms of the development of the whole supply chain, as you can imagine what conditions in – particularly in China. 26:31 We do see the potential for a portion of the project being online by August first, but Steve, let me turn it over to you to provide some more commentary on this..

26:42 Sure. So, hey, Ryan the – like we talked about for the increased risk of delivery, some of that's come through and at this point based on the project delays, we're trying to get work with Ameresco to ensure we get as many megawatts online as possible.

At this point, we expect that there could be up to 300 megawatts online in August, still subject to continued COVID and shipping restrictions out of China. But on the ground here, work is progressing.

27:16 With respect to the broader battery supply chain and really to your other question around resource adequacy, as we look at this summer, we feel that the state is in a slightly better position than it's been the last couple of summers with respect to capacity.

We're definitely focused on bringing our batteries online and ensuring other projects are getting online for this summer, but still there'll be a lot of caution going into summer and there's is a lot effort going into ensuring we get more resources available.

27:47 As you project beyond this year, as we know, the state is focused on bringing more than 11,000 megawatts of resources online by 2026. SCE’s portion of that is about 4,000 megawatts, and so we continue to procure resources for 2023, 2024 and then we'll be focused on 2025 and 2026 next.

28:07 We're working on everything from interconnection to securing supplies and with all of our third parties. To ensure that we can get enough resources in the state to ensure the liability and that's SCE’s job as well as the other entities within the state. So, this summer, we'll be in a better position than the last few summers..

28:26 And Steve, I’ll give a lot of credit, not only to other load-serving entities like SCE, but the CPUC, the Governor’s office, I think everybody is very focused on continuing to reduce the risk in California..

28:40 Thanks. And I guess one follow-up.

In terms of the cost recovery, if you're going to file that in late 2023, how are you currently looking at use of proceeds?.

28:52 Hey, Ryan, it's Maria. I mean, obviously, we have some – upon recovery, we have some de-levering to do. SCE has issued a bunch of debt to support the claims payments and EIX has as well issued press to support the balance sheet. So, when we get through that and we'll figure out what the next steps are with the use of proceeds..

29:12 Appreciate the color. Thank you..

29:14 Thanks much, Ryan..

29:16 Our next question comes from Sophie Karp, KeyBanc. Sophie, your line is open..

29:22 Hi, good afternoon. Thank you for taking my question.

So, to follow-up on this battery project, right, so, I think your equity needs for this year were a little higher to accommodate the cost of this project versus, kind of like 250 run rate that you communicated for other periods, should we expect that to sort of come down because of the potential delays with this project, or should we not expect that?.

29:50 Sophie, we still plan to deploy the full capital plan this year. So, it would impact on our financing plan..

29:57 Got it. Thank you. And then, could you talk a little bit more about the reason that you will challenge to inverse condemnation that we discussed in your prepared remarks.

I guess question is, where could this go? And given the potential outcomes what are the implications for the current legal proceedings or the framework in the State, and how should we view this? Help us [train this] [ph]?.

30:22 Let me turn this over to Adam Umanoff, who’s our General Counsel, Sophie..

30:26 Hey, Sophie, good afternoon. So, the utility had the opportunity to enter into a settlement with a particular plaintiff that we now are able to appeal to an [indiscernible] court here in California. The issue is the application in inverse condemnation to investor own utilities.

And as we said before, we think that the existing law is misguided that investor on utilities should not be strictly liable for damages arising from wildfires that are ignited by their equipment.

31:01 And there's an imbalance in the way the court has imposed strict liability against investor on utilities versus the fact that we need to ship prudence in cost recovery proceedings with our regulator.

So, if we are successful in winning an appeal, we would no longer be subject to strict liability in a wildfire case rather plaintiffs would need to show that we were negligent in the construction and operation of our equipment to pursue damages.

That would be a significant improvement in the liability exposure than investor on utilities have in California..

31:43 So would that apply to only like prior cases of wildfire damages or prospectively as well?.

31:51 It would only apply respectively. As a practical matter, we live with the current law that we have for cases that have been settled.

Those would not be reopened, but for even current cases that have not yet been resolved, if we were to win an appeal that would be new law and that law would apply to pending cases, but the appeal process is likely to take some time. So, I wouldn't expect an immediate answer from an [adult court] [ph]..

32:20 Right.

So, if you won, would that sort of greatly diminish the need for the current, I guess, wildfire framework or in the states?.

32:31 Well, there's a question of what the utilities liability is on the one hand, a separate issue is recovering costs in a wildfire case under a prudence review, which would still happen under AB 1054..

32:49 I think, Sophie, said another way inverse condemnation really is about [indiscernible] speaking here, but that’s another avenue for [indiscernible] cases and surcharges against the utility.

AB 1054 is really about defining the [part] [ph], the most important part in our view is, really finding the prudency framework under which utilities can seek cost recovery or fire damages that have [indiscernible] to the utility.

33:19 So, doing away with interest condemnation by reduce the – potentially the exposure for utilities, but once those exposure for utility AB 1054 is all about how the utility first pays for those damages in the first instance, right? In terms of accessing the fund and then more importantly over time, the utility makes the case for cost recovery and demonstrating that it's been prudent.

So that is important I think in any scenario and we're glad to have that strong piece of legislation..

33:52 Alright.

Thank you for the color?.

33:54 Yes thanks very much Sophie..

33:55 Thank you..

33:57 Our next question comes from Jonathan Arnold, Vertical Research Partners. Jonathan, your line is open..

34:02 Hi, good afternoon guys. Just a quick one on these larger claims, Pedro, you're talking about, and if I understood you correctly, you have some that you've already seen that were much bigger than you thought they would be, and then you've also made a provision for potentially others that might come in larger.

Can you give us any more color of these, sort of claims you kind of know are coming and that you have the [payments] [ph] identified is just a question of how big is it going to be or is it more a case of new claims are just popping up, you might not have had on your radar.

I don’t know, [indiscernible] if you can share anything there?.

34:46 No. So, as you might imagine Jonathan, I can't share anything about [indiscernible] the radar because that would be active litigation or settlement discussions. But maybe I can give you an illustration of one case without getting view any sort of detail.

These are personal property cases, right? And that's by and large where we are seeing some these larger than expected cases. 35:11 And so, as I mentioned earlier, the way we developed the best estimate, and the first instance was, we understand what the neighbor head is.

When we are [indiscernible] what the average value of homestays, we make provisions for the average value of contents in that average home. But not on home [indiscernible] average, and we know, right, and I think the average expense accounts and it will be a little higher, so will be a little bit lower.

35:33 Well, in the case of this last quarter, we saw a handful – a number of cases that were exceedingly large and one of them to illustrate it, one example is, make sure that Adam is okay with my [[sharing is] as I speak, but there was a case of an individual homeowner who happened to have a very expensive automobile production into the garage.

35:59 Well, above and beyond what the kinds of cars that people keep in very often neighborhood. This was an exceptional case where you basically had and you see them quality collection with lots and lots of cars. 36:14 Very hard to predict that upfront.

We did not build a provision for that kind of amazing car collection in anybody’s garage when we built the best estimate and so, the reserve now includes our provisions for what we paid.

And it also has included our provisions for business statistical analysis, some number, and I'm not going to be very specific about this, obviously because we are in active mitigation, but we now have included in our provision for some number of additional exceptionally large cases in the [remaining tail] [ph] that we're working for.

Does that help illustrate it Jonathan?.

36:55 I think so, yeah, thank you for that Pedro. And if I may just on that tail and how – it is my follow-up, the new best estimate is 7.9, you’ve got 1.3 sort of unresolved, which is actually sort of closer to 85% really in round numbers. 37:16 So, and if you continue to – you obviously resolved 700 million in this quarter.

Given what you're saying about timing and the 90% target, it feels like you must be anticipating quite a slowdown and pace of resolution here..

37:33 Actually Jonathan, this is Maria. I think, I mean, you could see some slowdown because obviously as cases progress, people may decide to come in more slowly, but I'd think it is about a couple of things. It's 90% plus, we'll see what's in that last 10% or so. The complexity of those cases that in the form timing regardless of quantum.

There are a couple of other things related to the litigation that we are also tracking. One of them is, includes where the intravenous case around the safety important division settlement stands. 38:07 So, we took a few things related to litigation. It's the individual plaintiff claims settlement process for sure.

There are few other things that are going to inform our timings, but we think based on all of those different components that we be filing for our first application by late 2023..

38:23 Great. Thank you for all that..

38:26 Thanks, Jonathan..

38:29 Our next question comes from Michael Lapides, Goldman Sachs. Michael, your line is open..

38:34 Hey guys. Thank you for taking my question.

Just curious, can you remind me, your EPS compound growth rate that 5% to 7% annual growth, that doesn't incorporate any outcome as part of $5.2 billion cost recovery, is that right?.

38:54 That's correct. So – because it seems now recovery..

38:58 It assumes you're a recovery.

So, your rate base growth is still faster than your EPS growth and this – I assume those proceeds, if there were any, regardless of how much, mostly would go to debt reduction and therefore would reduce interest expense?.

39:16 So, yeah, our rate based growth exceeds our earnings growth partly because of the investment to have that growth to the EIX financing plan, but also the debt associated with those wildfire claims payments is a drag on the growth rate.

So, to the extent we get recovery and reduce those are able to reduce that, then we will certainly have lower interest expense..

39:39 Got it. Okay. That's super helpful.

And just curious, when we think about if you were to get proceeds in, does it all go to kind of pay down debt that's at the utility or would you think about some being used to pay down any capitalization on top of the holding company level?.

39:59 Sure. Well, I think we could do a mix of things, right? There is definitely the dollars of the utility. EIX elected to use prep last year because it is more flexible. If you think about in five years we’ll have an opportunity to call it, reset it, what have you so that we can do a mix of things to the extent we get the recovery..

40:19 Got it. Thanks guys. Much appreciate it, Maria..

40:23 Yes, Michael..

40:24 Our next question comes from Gregg Orrill, UBS. Gregg, your line is open..

40:30 Yeah, thank you. I was wondering – sorry if you’ve covered this, I was wondering if you could review the, sort of recovery mechanism how it gets into rate base.

The incremental covered conductor miles above that 4,500 level?.

40:52 Sure. So, in GRC track 1, we were authorized for covered conductor, including a balancing account that allows us to go up to the 4,500 mile level. For amounts up above that level, we would file an application and the commission would review the resemblance of that.

We're already contemplating going beyond the 4,500 and when we file our – we have about 5,000 plus by the end of 2023. So, there will be an application associated with that. And then in track 4, which is for 2024, we will be proposing additional covered conductor miles and it would be approved as part of track 4..

41:38 Okay. Thank you..

41:42 Our next question comes from Richard Sutherland, JPMorgan Chase. Richard, your line is open..

41:50 Hi, good afternoon. Thank you for the time.

Just wanted to circle back to the financing outlook, now that there is the late 2023 target on the wildfire liability application for cost recovery, in that timeframe, meaning from now through late 2023, what is your capacity to carry incremental claims without associated incremental equity need?.

42:18 So, I think, I'll go back to, sort of the perspective on our balance sheet. Right now we're generally in that 15% to 17% FFO to debt ranges our framework, generally around that 15% level. Going to next year, we would also generally see ourselves moving farther into that, into that band or that range.

You know that we've just announced that we had a revision to the estimate and have not had to change our financing plan. 42:44 We're still committed to the financing plan. We disclosed on the Q4 call. As we move into next year and our balance sheet gets stronger yet, we'll have more room and more opportunities or anything that might happen.

We absolutely are reiterating our financing plan for 2022, but given all of the fluctuations and volatility in the market, we actually took a term loan out at EIX to give ourselves more time and more flexibility to actually execute on that plan.

43:12 So, we're really focused primarily Richard on flexibility and kind of executing in the best possible way..

43:23 Understood.

So, just mechanically, it's really that 13% to 17% range to keep in mind and I guess, sort of movements within that range versus saying the midpoint is an outlook for now?.

43:34 That's right. I mean, that 15% to 17% range is the range and we're going to use the range..

43:40 Got it. Very clear.

And then hopefully just a clean-up question, saw that 2024 rate base ticked down a little bit, but 2025 is unchanged, just any moving parts to call out behind that revision?.

43:54 Yes. Good question. It actually does not have to do with our capital execution. If you see, our capital plan is pretty – very, very close to where it was when we did our Q4 call.

The change in 2024 is related to, I'll say two very broad buckets, mostly around timing, both timing of applications and timing of when we adjust or get authorization to adjust some working capital items that impact rate base. So, you'll see that there is a change in 2024, but 2025 hasn't changed..

44:25 Great. Thank you for the color..

44:29 Our next question comes from Julien Dumoulin-Smith from Bank of America. Julien, your line is open..

44:36 Thank you, operator. Good afternoon, everyone. Thanks for the time.

So, just coming back to where we started the Q&A here, can we talk a little bit or at the new information during settlement negotiations that led to your desire to settle, just can you elaborate to the best extent possible on just what led to that twist here at this point?.

44:57 Hey Julien, so I think I covered it pretty well with Jonathan’s question, right, because that question went a bit to what were some of the extraordinary cases and I think that's related to your question, what would have let us to settle cases that we thought were significantly larger, and then, we might have expected based on our prior analysis.

So, I'm not sure I have a whole lot to add there, just maybe to reiterate the points and then we set this in the past as well Julien. 45:32 We're nothing about consistent on these calls. And the reality is that each of these cases is an individual case and as you know, case by case by case by case across thousands of cases.

And I give a lot of credit to our team.

They've done a great job both the internal team and with outside support and trying to get our arms around this [uncertainty comp] [ph] from the very beginning and do mappings of the areas that were impacted and have a sense of what kind of household are in each neighborhood that was impacted? And obviously thinking about the tragic toll on too many families.

And so, developing a number of estimates that led to the best estimate. 46:13 Initially, you might recall, we didn't provide you a best estimate.

We were only able to provide you a low end of the [indiscernible] range, because we’re still at such a large part of the uncertainty come that we couldn't develop the best estimate as we got more experience under our belt we progressed, and we're able to shift through the best estimate, but to be candid about it, there’s been learnings and surprises along the way and not – if there are no surprises, there are surprises, right, with this kind of complex very large case.

46:43 And so, again going back to what I [indiscernible] in response to Jonathan’s question, we saw, and I think the biggest driver this quarter was seeing a small number of very large cases that were well beyond the scope of what we had and anticipated, making – taking a reserve for those cases that we've now settled taking an additional reserve amount anticipating that we might find more surprises in the rest of the tail that's remaining.

And then of course, the second big factor that I mentioned in my prepared remarks was also adjusting for the number of [pointers] [ph] that we're seeing.

47:22 That's about all the color we can give you at this point, Julien, but it's been, I think a very deliberate process on the part of our team [indiscernible] very methodical and it's just to reality of the statistics and frankly the probability curve across thousands and thousands of cases..

47:43 Pedro, if I can clarify actually, maybe to bifurcate or distinguish from Jonathan’s question.

I hear you in addressing, sort of the different settling pattern in the quantum and maybe that's driving a different estimate, but maybe the nuance here and what's intriguing is why settle, right? Why is that triggering a decision to settle? Is it simply just understanding what the mark to market is, and the [indiscernible] gets resolved? Or is there some new information that's driving settlements? If you can distinguish between the two?.

48:14 Yes. I think the best way to answer your question is, again, we go case by case. Let me [indiscernible] extreme here. We have not come across this one yet, but we saw that there was a particular [indiscernible] who was making a demand that was so out of [less] [ph] field that baffled the logic of settling.

I don't think we would settle at that point, right? And that might be a case that we would decide to take the [indiscernible] trial at the end of the day. 48:45 So, I don't think there's any systemic big news or change at saying we have changed our approach to settlements.

These really have been bottom up case by case decisions around, okay, we understand the fact better in this case, we understand what arguments we have in our favor, [I’m sure] [ph] arguments might [indiscernible] our favor, we have some sense of where our jury might [announce] [ph], we have a sense of what the continuing costs are in pursuing [indiscernible] litigation, which by the way has its own set of costs, alright, that's just the legal process.

49:22 And further [indiscernible] in the like. And so we continue to make those judgments on a case by case basis there.

If your question is asking, is there something else that that you are aware of, or that we're aware of or is there something more systemic or something that is influencing how we think about settling differently from a quarter ago, the answer would be no.

49:45 Does that help with your question, Julien?.

49:47 Yeah, Absolutely. Thank you for the time and patience..

49:52 Thank you, Julien..

49:56 That was our last question. I will now turn the call back over to Mr. Sam Ramraj..

50:02 Well, thank you for joining us. This concludes the conference call. Have a good rest of the day and stay safe. You may now disconnect..